Anger over executive benefits - a phenomenon more common in boom times - is impeding progress at American and United Airlines.
At United, a management compensation plan to reward top executives in the first years after the carrier’s bankruptcy exit has led to strenuous objections that threatened to slow the airline’s departure from reorganisation. Similarly, at American, a bonus plan threatens the goodwill that aided the carrier’s voluntary cost-savings campaign.
The United plan would set aside bonuses for the top eight executives and award grants of $45 million in stock after the carrier emerges from bankruptcy. It was estimated that chief executive Glenn Tilton would get as much as $15 million of the stock or as much as 1.1% of shares in parent UAL.
Unions are outraged. Association of Flight Attendants union president Greg Davidowitch says: “In medieval times, people guilty of this kind of greed would have been boiled in oil. Our more civilised society has substituted legal remedies where torture was once called for. The masses, however, still expect justice – shared pain, shared sacrifice and shared success.” United made modifications to the plan as it headed toward a court date to declare it had resolved creditor objections to its plan of reorganisation. It is set to emerge formally in February.
At American, strenuous cost-cuts achieved voluntarily have helped the carrier stay out of bankruptcy, but the consensus was rocked by the revelation that managers from the mid-level up still stood to gain as much as $1.7 million each under a retention plan. The plan, adopted in 2003, had led to the forced exit of former chief executive Donald Carty and nearly pushed parent AMR into bankruptcy until Carty’s successor, Gerard Arpey, engineered concessions. His approach has been to create a new relationship with employees to jointly work for efficiency gains.
Arpey is not covered by the retention plan, which is closely linked to the price of AMR shares, now in the $20 range, from around $4 in 2003. Unions were once again outraged, and so was a pilot splinter group, called Pilots Defending the Profession at American, which denounced the leadership of the Allied Pilots Association for agreeing to co-operate with management in 2003 and in several initiatives since. Indeed it is the threat from hard-line union groups that may be the most undesirable fallout from the situation.
How Arpey will resolve the issue and defuse the anger remains to be seen. But his dilemma demonstrates that in an industry marked by multi-billion losses, a company that keeps deficits in the several-hundred million dollar range can become a stock market star.
Merrill Lynch analyst Mike Linenberg says the spat highlights a major issue: “How to retain and attract high-quality leaders.” AMR is “on its third chief financial officer in three years, with the previous two jumping ship for greener pastures, which should be a loud and clear message to the unions that they are scaring away the best and the brightest”. If recovery is coming, the issue is likely on the return as well. ■
DAVID FIELD / WASHINGTON
Source: Airline Business
